Will the ceasefire in US-China Trade-War revive the stock markets?

Team Veye | 03-Dec-2018 stock markets

After the G-20 summit in Buenos Aires, the US President Donald Trump met his Chinese counterpart Xi Jinping  - the first face-to-face meeting between the two leaders since a trade war erupted earlier this year and agreed not to boost tariffs on $200bn (£157bn) of Chinese goods from 10% to 25% on 1st  Jan’19 for 90 days to allow for talks.

But at the same time US has warned that if at the end of this period of time, both the sides are unable to reach an agreement, the 10% tariffs will be raised to 25%. 

The dispute broke out earlier this year after Donald Trump complained that China was doing nothing to cut its large surplus in bilateral trade. Following the meeting US stated that China has agreed to purchase substantial amount of agricultural, energy, industrial, and other products from the United States to reduce the trade imbalance between the two, although the figures are not yet agreed upon. Both sides also pledged to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft. And keeping this in view China also agreed upon reviewing the Qualcomm - NXP deal that it had earlier opposed.

It is quite evident that there are more issues in the US-China relations which are currently escalating in the form of the trade war as US tries to safeguard its position of being the Super Power in the world from the rising influence of China. And, it’s not only US, countries around the world are pushing back against China's revival as a major global power. It is China's sheer size and population that makes it a heavy-weight, and a clear strategic rival to the United States. While US and Europe were trying to recover from the devastating financial crises, China’s influence has boomed along with its economy in the recent years. This has certainly become a flash point for several countries, particularly the US, which is keen to retain its dominant position in the world.

All these trade war worries have caused major U.S. stock indices to give up this year’s gains, before they recovered a bit last week following dovish comments from Federal Reserve Chairman Jerome Powell. And this certainly had a ripple effect on markets across the globe due to the inter-dependencies between trades across different countries. 

So, does this mean that everything would be back to normal and the markets would revive? 

Well, the time-line to iron out the differences between US & China are tight given that there are many complex issues involved. And, if a pact isn’t reached in 90 days, the U.S. tariffs on $200 billion in Chinese goods will increase from 10% to 25%. So, the Veye Analysts suggest that for any investors inclined to rush back in, it would be wise to tread carefully.


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